Southeast Asia experiences deal slump, with PE deal value down 39% in 2023

Private equity investment is being scaled down around the world, as “higher for longer” interest rates and uncertain global growth have reduced investors’ appetite for risk,

And Southeast Asia, only a few years ago considered a budding hot spot of the digital economy, is no exception. A new report from Bain and Company shows that private equity deals are falling in the region, despite a positive growth outlook, and the region could benefit from a global trend of business relocation return home.

Deal value in Southeast Asia is down 39%, reaching $9 billion in 2023, compared to the current average from 2018 to 2022. The total number of deals is also down, to 109, down 24% from previous average. Transaction values ​​in the region have returned to 2020 levels.

However, Southeast Asia’s performance is roughly on par with other Asia-Pacific markets. Transaction value in China and India decreased by 58% and 41% over the same period, respectively.

A market that has performed well? Japan, which boasts a 183% increase in transaction value compared to the average from 2018 to 2022.

Singapore and Indonesia account for the majority of transactions in Southeast Asia, both in terms of value and volume. “Singapore is usually number one,” said Usman Akhtar, senior partner and head of Southeast Asia private equity at Bain. “Singapore is a geographical location that attracts many companies with regional ambitions. That doesn’t necessarily mean it’s all economically active in Singapore, but this is where the companies are based.”

According to Bain, Indonesia often comes in second place when it comes to attracting private equity investment. The country has the region’s largest economy and boasts a rapidly growing middle class.

Southeast Asia on average reported private equity-backed investments worth between $10 billion and $11 billion between 2018 and 2020, only to spike to $27 billion in 2021, due to the pandemic. COVID epidemic refueling investment boom in the internet sector.

According to Bain’s report, the internet and technology sectors continue to receive the most private equity investments, accounting for more than half of all deals since 2018. However, healthcare is growing fast quickly as an attractive target for investors. The company also forecasts rising earnings in the region will make the consumer products sector an investment hot spot.

If 2023 is difficult, 2024 is unlikely to be much easier. A Bain survey found that investors expect less favorable returns over the next three to five years and are worried about challenging exit conditions for their investments.

Trading activity in Southeast Asia has slowed this year. To date, only $1.4 billion in private equity deals have been agreed in Southeast Asia in the first quarter of 2024 — or $5.6 billion at an annualized rate, lower than $9 billion in deals since last year.

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